The United States Drug Money: Is There Any Way to Stop the Spend?

Updated: Apr 27

In 2016, the United States spent a whopping $457 billion on retail and non-retail drugs. Of that total, the Medicare spend was $130 billion. On top of those huge numbers, the drug spend across the U.S. increased 27 percent from 2011-2016, and hasn’t stopped. That 27 percent is more than 2.5 times the rate of growth in inflation, according to the Analysis of Centers for Medicare & Medicaid Services.

Because of these increases, and with more Americans feeling that the costs of prescription drugs are unreasonable, legislators have begun seriously discussing drug models that can lower costs and decrease the out-of-pocket burden for American consumers. But, how do they know where to start? Looking at how other countries manage drug costs is looking like a good jumping off point.

There are two reports we’d like to highlight that have studied these international models and the current state of U.S. drugs. Below, are statistics and excerpts that we think are important for our clients, employers, and American citizens to understand:

How the U.S. Compares (A Painful Pill to Swallow: U.S. vs. International Prescription Drug Prices prepared by the Ways and Means Committee Staff in September 2019)

  • The U.S. pays the most for drugs than any compared country, though prices varied widely. Currently, the U.S. spends 7x more than Japan on drugs, as an example.

  • U.S. drug prices were nearly four times higher than average prices compared to similar countries.

  • U.S. consumers pay significantly more for drugs than other countries, even when accounting for rebates.

  • The U.S. could save $49 billion annually if they adopted prices like those in Germany or the U.K.

Americans Feel that Drug Prices are Too High (Ways and Means, 2019)

  • Many families face the decision to pay for medicine or put food on the table.

  • 79 percent of Americans believe the costs of prescription drugs are unreasonable and 26 percent of Americans are worried they might not be able to afford the prescription drugs they need (Kaiser Family Foundation Poll, 2018).

  • Patients can be responsible for nearly $10,000, on average, for pharmacy claims (AARP Public Policy Institute, 2017).

Protecting U.S. Citizens by Implementing External Reference Pricing (ERP) (Ways and Means, 2019)

  • We need to use other countries to create benchmark reference points for drug prices.

  • Countries can choose to use averages, points of variation, or manufacturer prices to calculate their drug prices with ERPs.

  • Prices are publicly available to create transparency.

  • Regardless of strategy, ERPs have been effective at ensuring prices, creating moderately priced drugs in a market, and reducing drug costs.

Understanding How the U.S. Compares to Other Countries is Helpful in Determining Policies to Control Costs (Rand Corporation Research Report on International Prescription Drug Price Comparisons, 2021)

  • It is important to accumulate and analyze new data to systematically compare drug prices in the United States to those in other countries.

  • Unbranded generic drugs in the U.S. represent 84 percent of volume compared to 35 percent in other countries.

Overall, these reports paint a similar picture – drugs in the U.S. are overpriced and much of the burden falls on the consumers. Better policies will arise from analyzing data and benchmarks from other countries on their drug prices and models. But, we also need to implement smarter, strategic plans and initiatives to control costs and drive strong return-on-investment programs in regards to pharmacy benefits plans in the U.S. At Arxcel, we believe we have the proven results to help save the consumer and their employer money while getting them the medications they need to live a healthy life.

Questions about drug costs in the U.S. or international prescription benchmarks and comparisons? Let us know.